Differentiation Strategy of Starbucks - Case Study Example

?A close analysis of the case study of Starbucks shows that the company managed to gain its popularity across the globe as a result of the business strategy it used. The company used the differentiation strategy where it sought to offer special coffee as well as experience to the customers. However, this case of Starbucks shows that there are various challenges in India that can affect the company in its endeavour to penetrate this market. As such, this paper seeks to outline the challenges that face Starbucks in its attempt to penetrate this seemingly lucrative but complex market. A critical analysis of the case shows that disposable income is concentrated in urban areas among the middle class. However, it can also be noted that this class is comprised of people between the ages of 25 and 40. On the other hand, it can be seen that India’s population is regarded as one of the youngest in the world. For instance, it has been observed that as of 2000, about one the country’s population was below 15 years. Whilst this is the largest group, it can be seen that these people have less disposable income hence they may not afford the luxury to go to coffee shops. The average age in India is pegged at 29 compared to other countries across the globe. The majority of the people in India are those still working to so they cannot afford to visit coffee shops. This is likely to impact on Starbucks’ endeavour to establish business in India. However, Starbucks recently partnered with Tata Global Beverages Ltd to open a store in New Delhi. The financial performance of the company in this country is not yet fully ascertained since it is still on the stage of penetrating the market. Apart from being an emerging economy in the world, India faces numerous constraints that are likely to pose a challenge Starbucks when it intends to enter this market. For instance, country has poor infrastructure and this may impact negatively on Starbucks. The regulations in this country are also stringent such that they may pose a challenge to this company when it plans to penetrate the market. The company should comply with rules and regulations of the country if it intends to successfully launch a business. In case of India, it can be seen that it is open to foreign investors to start business but the problem is that some of the regulations may not be favourable to the company. The other problem characterizing global retail index of India is that the industry is not that lucrative compared to other international destinations. As of 2006, India had a score of 55% in terms of risk of opening business there. When there is high risk in a country, it may not be wise for the company to open business in that particular area. Therefore, this may not go down well with Starbucks and this is the reason why it is procrastinating in terms of starting business in this country. The company may experience unprecedented loses if the level of risk is very high. Therefore, it is important to carry out feasibility studies in order to establish the level of lucrativeness of the industry. Failure to do so may impact negatively on the company. India’s market is saturated though it is attractive. This entails that competition is very high and it may be difficult for Starbucks to operate viably in this market. It can also be noted that there are other substitute products like tea which are very popular in this country. There are also other beverages that can be consumed by the customers in place of coffee. When there is stiff competition in the market, it may be difficult to attract many customers during the preliminary stages of the product in the market. However, if the product is well received in the market, it may quickly gain popularity among the customers. This can help the company in the long run but as it stands, it seems that Starbucks is facing numerous challenges that can impact on its endeavour to penetrate the Indian market. When competition is high, the players in the industry compete for the same customers. Other established companies can enjoy a large market share which can affect on the company mentioned above on its plans to start business in India. It becomes important for the marketers to segment the market in such a way that it identifies the targeted customers. When the targeted customers have been identified it can becomes easier for the company to appeal to the interests of many people. The other factor is that food consumption habits differ from place to place in India. The culture of the Indians had a significant impact on their consumption habits. The majority of the citizens in India preferred tea to coffee. The consumption of coffee was pegged at 19 % compared to the consumption of tea which was pegged on 79 % in 2000. It is quite challenging to change the behaviour of people within a short period of time since they have their own attitudes that shape their behaviour. The other issue is that home grown brands dominate the coffee industry in India. Introducing a new brand of coffee may be challenging since people want to maintain the status quo. In most cases, the consumers buy the products they trust. This takes time to appeal to the interests of the customers as well as to create loyalty among them. The sale of cold coffee exceeds the sale of hot coffee in India. This has a bearing on the likely performance of the products offered by Starbucks. This company offers hot coffee and it may not readily appeal to the interests of many people. The coffee grown in India appeals to the interests of many people since it is home grown. It suits the interests of many people and it culture bound. The Indians can identify with the coffee that is grown in their own homeland than the products imported from other countries. Therefore, in case of Starbucks, it can be seen that the company has an uphill task in trying to convince the customers that its products are better than the ones found in this country. The issue of premium prices is also likely to have impacts on the consumption patterns of coffee by the Indian people. According to studies, it can be observed that the per capita income in India was lower than in other markets across the globe. This means that these people may not be able to afford expensive products that are meant for luxury and prestige. Premium prices are often associated with high quality in well developed markets. The main reason is that people with high disposable income can afford to buy products with premium prices. However, disposable income is little in India since it can be seen that the majority of people earn less and they have less money to spend on consumer products. High prices are likely to scare away the customers from the products offered hence Starbucks should review this strategy when it penetrates the Indian market. Coffee offered by Starbucks is associated with problems of obesity and this impacted on Starbucks endeavour to penetrate the Indian coffee market. The problem of obesity is widespread in India and it can be attributed to the types of beverages consumed by the people. Local coffee in India was given preference by the consumers because it had fewer side effects that could negatively impact on the health of people. The trends in the consumption patterns of coffee by the Indians indicate that people who are conscious to their health prefer tea. This may pose a serious threat to Starbucks in its bid to penetrate this market which may not be that lucrative in the long run. It may be quite difficult to for a new company to convince the people that its products are safe to their health. As seen in the case, Starbucks’ products are said to be responsible for causing obesity. This is a widespread problem that poses various challenges to the people affected by this healthcare issue. The strategy that may be adopted by Starbucks when it penetrates the Indian market is to offer a unique product that can appeal to the interests of many people. Research has shown that the consumption patterns of coffee in India are low hence the company show lower its prices when it penetrates this particular market. The customers are likely to buy the products that have fair prices. The company can then increase the price after establishing the response of the people towards the products offered. It is also imperative for Starbuck to adopt aggressive marketing when it penetrates this market. The main aim of this strategy would be to raise awareness among the people about the products as well as to try to appeal to their interests. When people are happy about the product features, they are likely to try it. They can also attract other customers to try the product. The other issue that should be considered by Starbucks is related to positioning of the product. This will impact on the performance of the product in several ways. People have different perceptions towards a product and this has a bearing on its performance in the market. Therefore, Starbucks should look for convenient places where it can establish its shops. It is also important for the company to try to partner with other local stores that are already establish as this will help to form a strong customer base for the company. This will also help the organization to gain a large market share if it uses the strategy of partnering with local companies in India. The main advantage for this is that the local people can identify with local organizations. Overall, the Indian market may be a bit challenging to penetrate but the company is performing well in other markets. According to Starbucks Corporation Fiscal 2012 Annual Report, it can be seen that the company is positively performing in other global markets. For instance, Starbucks had net revenue of $13.3 billion compared to $11.7 billion in 2011. This reflects a positive increase in the performance of the company. It can also be seen that the operating cash flow for Starbucks was pegged at $1,750 million at the end of 2012 fiscal year and this figure is higher than the previous years. A close analysis of the financial statements of Starbucks shows that the company’s performance is quite good since it is recording positive results in its operations. Over and above, it can be seen that there are many factors that can negatively impact on Starbucks’ endeavour to penetrate the Indian market. For instance, the culture of the Indians significantly impact on their consumption patterns of beverages such as coffee. Research has shown that the majority of people prefer tea than coffee and their per capita income is lower and this affects their consumption patterns of products such as coffee. These are often viewed as luxury products and this is the reason why the majority of people cannot afford to buy these products offered in coffee shops. These factors pose a serious challenge to Starbucks in its endeavour to penetrate this lucrative but complex market. However, care should be taken when the company designs its marketing and communication strategy since this is very important in the performance of the company in the long run. The issue of quality should also be taken into consideration. References Starbucks Corporation Fiscal 2012 Annual Report http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-reportsannual Zacks Equity Research (2013). Starbucks expands in India. 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